How to Decrease Your Account Receivables Days ?

How to Decrease Your Account Receivables Days ?


Account receivables days (ARD) is a key metric that measures how long it takes a company to collect payments from its customers. A high ARD can strain cash flow, limit growth opportunities, and damage business relationships.


  • Global Statistics


    • ● According to a study by Dun & Bradstreet, businesses with a high ARD are more likely to experience financial difficulties and business failures.
    • ● In the United States, the average ARD for small businesses is around 45 days. However, this can vary significantly depending on the industry and economic conditions.
    • ● A study by the National Small Business Association found that businesses with an ARD of 60 days or more were twice as likely to experience financial difficulties compared to those with an ARD of 30 days or less.
    • ● Research by the American Bankers Association revealed that a 10% reduction in ARD can lead to a 2% increase in profitability.

  • Industry-Specific ARD Benchmarks


    • ● Manufacturing: 50-60 days
    • ● Wholesale: 45-55 days
    • ● Retail: 30-40 days
    • ● Services: 40-50 days

  • Best Practices for Improving ARD


    • ● Regularly Review Credit Policies: Periodically assess your credit policies to ensure they remain effective and aligned with your business objectives.
    • ● Utilize Technology: Implement software solutions to automate invoice processing, track payments, and send reminders.
    • ● Educate Your Staff: Train your employees on the importance of timely invoicing and effective collection procedures.
    • ● Monitor Industry Trends: Stay informed about industry-specific trends and adjust your strategies accordingly.

  • Strategies to Decrease ARD


    • 1. Tighten Credit Policies: Reevaluate your credit policies to ensure you're offering appropriate credit terms to your customers. Consider factors such as their financial history, industry, and size.
    • 2. Improve Credit Screening: Implement more rigorous credit screening processes to identify potential risks and reduce the likelihood of late payments.
    • 3. Offer Incentives for Early Payment: Consider offering discounts or other incentives to encourage customers to pay their invoices promptly.
    • 4. Send Timely Invoices: Ensure that invoices are issued accurately and promptly to avoid delays in payment.
    • 5. Follow Up Promptly: Establish a systematic follow-up process to remind customers of outstanding invoices and address any concerns.
    • 6. Consider Factoring: If you're struggling with late payments, factoring can provide immediate cash flow by selling your invoices to a third party at a discount.
    • 7. Negotiate Payment Plans: In some cases, negotiating payment plans with customers can help to resolve late payments and avoid escalating the issue.

By understanding the factors that impact ARD and implementing effective strategies, businesses can improve their cash flow, enhance their financial performance, and strengthen their relationships with customers.

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